A new CEO, Brexit and supply-side exposure may leave Wipro’s Q1 earnings more dented than others

• The strategy of Wipro’s new CEO, Theirry Delaporte, will be key in deciding the company’s outlook going forward.
• Wipro is likely to wait out another quarter before issuing its annual guidance, according to analysts.
• Brokerages expect Wipro’s revenue in the first quarter to drop by at least 7%.

Wipro is set to report its first-quarter earnings on 14 July, and with other IT services companies in India, analysts expect a dip in revenues and profit — more so than its peers.

Source: Preview reports

So far this year, Wipro’s share value continues to be down by 8%. However, it has managed to come back from its coronavirus hit by almost 40% since March 19.


The impact of the coronavirus pandemic on Wipro
As the quarter has progressed, supply-side issues have eased as most of the countries reopened their economies. However, Wipro may have a little more to worry about. “Wipro’s high BPO contribution to revenue makes it more vulnerable to supply-side disruptions as in the current scenario,” said Nirmal Bang’s preview.


Given that BPOs account for more than 40% of Wipro’s IT services, revenue from IT services is expected to see an 8% decline quarter-on-quarter (QoQ) in constant currency (CC) terms, according to IDBI securities. “EBIT margins in global IT services are expected to decline 74 bps [basis points] due to a sharp dip in utilisation,” said ICICI Securities. 100 basis points make up 1%.

Unlike its peers, where analysts expect the impact to be limited to particular verticals, Wipro is expected to see “broad-based impact”, according to Motilal Oswal.

The product and platforms side of the business may show resilience, expects Nirmal Bang. However, the key segments to keep an eye on will be the impact on engineering research and development (ER&D) and energy, given Wipro’s large exposure to both.

Like with TCS, there is likely to be a hard impact of Brexit compounding the weakness in Europe on manufacturing.

Wipro has a new CEO
The company has recently undergone a change in leadership with Theirry Delaporte becoming the new Wipro CEO. “Long term strategy of the new CEO, strategy to drive industry-leading growth and revival timeline of impacted verticals,” will be a key factor to watch out for as per ICICI securities.


During Monday’s Annual General Meeting (AGM), Delaporte hinted at finalising a plan that would improve the company’s position in the market and “achieve industry-leading growth.” “We will make bold bets and stretch goals and will aim to drive a high-performance culture as we steadfastly hold to our cherished values,” he said.

Even so, it’s unlikely that Wipro will issue guidance during the first-quarter earnings. Analysts expect the company to wait out another quarter before sharing its outlook for the year.

“We anticipate that we will resume providing revenue guidance when we have increased certainty of both demand and supply-side factors,” Wipro said last quarter.

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